Like many technology stocks, Intuit (INTU +1.59%) has gotten clobbered this year. The fintech company has lost nearly 40% of its value. Weighing on shares are concerns that a weakening macroeconomic environment will impact the company's growth prospects.
With some of those fears coming to fruition, many analysts are growing cautious about the company's near-term stock price upside potential. However, they still see a significant upside opportunity from here of as much as 60%. The company agrees that the market isn't fully valuing its shares, given its sizable repurchase program.
NASDAQ: INTU
Key Data Points
Still thriving despite some bad Karma
Intuit's global financial technology platform primarily caters to small-and-midsized businesses (SMBs) and consumers. Those groups tend to become more cautious and slow spending at the first whiff of an economic downturn.
Intuit has already started to see the negative impacts of the uncertain macroeconomic environment at its Credit Karma division. Credit Karma's revenue only grew by 2% in the company's recently reported fiscal first quarter to $425 million. While demand for credit cards remained strong, it saw headwinds from slowing interest in personal loans, home loans, auto insurance, and auto loans.
However, despite the sluggish growth from Credit Karma, Intuit still reported strong fiscal first-quarter numbers. Total revenue surged 29% to $2.6 billion, with 13 points of growth coming from its acquisition of Mailchimp. In addition to Mailchimp, the company saw strength in QuickBooks, where online accounting revenue grew 29%, propelled by customer growth and higher pricing.
While the company does expect Credit Karma's slowdown to impact revenue growth, -- it now forecasts revenue to rise 10%-12% this fiscal year instead of 14%-16% -- it reiterated its profitability outlook for the full year. It still expects non-GAAP earnings per share to grow 15% to 17% this year.
Cautiously optimistic
Intuit's somewhat mixed report led many analysts to lower their price targets on the company's stock while maintaining their ratings. For example, BMO Capital analyst Daniel Jester maintained his outperform rating on Intuit stock. However, he lowered his price target from $467 to $448 per share. That implies about 10% upside from here. The analyst liked that Intuit used conservative assumptions for its guidance and that the upcoming U.S. tax season is a potential major catalyst for its TurboTax business and the stock.
Jefferies analyst Brent Thrill made a similar call. He maintained his buy rating but lowered his price target from $560 to $525 (implying nearly 30% upside). The analyst noted that Intuit "remains a high quality, defensive franchise, though not entirely immune to macro headwinds."
Meanwhile, Mizuho analyst Siti Panigrahi reiterated both their buy rating and $650 price target, implying nearly 60% upside from the current price. The analyst noted that the company's ability to reiterate its earnings guidance showcases the resilience and flexibility of its business model. The analyst sees Intuit as a defensive software stock with significant potential upside.
Taking advantage of the opportunity
Intuit agrees with analysts that the market isn't fully valuing its stock. That's evident by the $519 million of shares the company repurchased during the first quarter, up from $335 million in the year-ago period. The company plans to continue buying back its stock. CFO Michelle Clatterbuck stated on the conference call, "Depending on market conditions and other factors, our aim is to be in the market (repurchasing shares) each quarter." It has $3 billion remaining on its current share repurchase authorization.
It can afford to buy back stock because it has a strong balance sheet and a business that generates free cash flow. Inuit ended the first quarter with $2.7 billion of cash and investments against $7 billion of debt. Meanwhile,
A lower-risk, high-upside opportunity
While Intuit is feeling some pressure from the uncertain macroeconomic environment, most of its businesses are resilient (companies need its financial software). Analysts therefore believe the stock has lots of upside from here. That combination of defensive characteristics and upside potential makes Intuit look like an attractive investment opportunity these days.
